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Korea Report - May 2004

Author : Hwang & Co Date : 04-06-19 08:15 Hit : 37369

Topics.

- Constitutional Court cleared way for President Roh to regain the control of the nation.
- Prosecution concluded year long investigation on illegal political fund for 2002 presidential election.
- Both Korea's held high ranking military talks to ease the tension.
- Dispatch of Korean troops to Iraq again delayed.
- US plans to reduce its military presence in Korean Peninsula.
- Korean economy is shaken by 3 devil effects, such as high oil price, Chinese slow down in economy and US move to raise interest rate.
- DaimlerChrysler decided to break the tie with Hyundai Motor.
- KOSPI on roller coaster.
- Korean shipbuilder's domination in world market continued.
- GOLAR LNG's alleged hostile M+A of Korea Line alerts the society.
- HMM aggressive in fleet expansion

GOVERNMENT AND POLICY

The Constitutional Courts' nine judges held plenary meetings to reach a conclusion on the fate of impeached President Roh Moo-hyun and ruled that President Roh made the violations of laws, which, however, were not grave enough to sack him. President Roh Moo-hyun regained control of the nation after the Constitutional Court‘s conclusion cleared the way for him to push forward with his shelved reform agenda. The main opposition Grand National Party accepted the Court's verdict and apologized to the nation for having caused national concerns about the leadership vacuum. Pro-government Uri Party and Democratic Labor Party welcomed the decision, saying it is a reflection of the public view.
President Roh Moo-hyun accepted Prime Minister Goh Kun's resignation, after Goh refused to assign new cabinet members before his resignation, and has to delay his plan to replace his Unification, Health and Culture ministers till late in June, when the nation has a new PM.

Prosecution concluded its year long investigation on illegal political funds for the presidential election in 2002. Most of major chaebols have been freed from criminal booking, so that they could concentrate on the management, enhancing transparency in business to recover public confidence. They declared not to be involved in illegal political funds in future, and people wished it would be the clear momentum for the political circle to end the practice to collect illegal political funds from business side. Prosecution also dropped the charges against President Roh and Lee Hoi-chang.
The deputy chief of the Korea-US Combined Forces Command, Gen. Shin Il-soon, was arrested on embezzlement and bribe-taking charges. It was the first SKorean four-star Army general ever detained for a personal irregularities.

Government proposed that trade unions, employers and the administration set up a temporary dialogue channel, on the sidelines of their currently inactive trilateral panel, to prevent labor conflicts.
Salary has risen about 6% on the reduction of labor productivity by 0.23% last year. Korea's salary has been increased by 22% in past 3 years, 5-7 folds of those in Hong Kong and Singapore.
Trade Unions at Korea's major car makers plan to seek more say in management at the collective bargaining this spring, amid some concerns the demand may sour the labor relations in the local auto industry.
Korea crept up the ladder of economic size, ranking 11th in the world in 2002 by achieving a nominal gross national income of $543 bil, while the per capita income reached $11,400 recording 49th in the world.

The Underwood family, who founded Yonsei University and helped rebuild Korea from the days under Japanese imperial rule through the Korean War, decided to return to the USA after nearly 120 years and four generations of selfless service to Korean society.
Film Director Park Chan-wook has proved that the current fanfare for Korean cinema is no passing phase. His film "Old Boy"　won the Grand Prize at Cannes Film Festival in May. The Nobel Prize Laureate Dr Robert Laughlin has been assigned as the 12th president of KAIST.

NORTH KOREA AND NATIONAL DEFENSE

NK has begun rebuilding the town pulverized by a deadly train explosion in April, as SKorean relief goods arrived at the spot as part of international rehabilitation efforts. The casualty toll so far stands 161 dead and 1,300 injured, while thousands were left homeless. Hyundai Asan is looking at sending bus tours to visit possibly five or six sites in the area of Gaesung which is less than two hours driving distance from Seoul.
Government is to give local companies subsidies amounting to 50% of losses incurred in trade with NK, if the losses are not their fault.

The high ranking military officers from both Koreas held the unprecedented talks aimed at crafting joint measures to avoid naval clashes off the west coast and build up bilateral trust, agreeing to hold inter Korean military meeting on a regular basis, which will help defuse tension on the Korean Peninsula, even though there would still be many turns and twists to negotiate on the road to regular and fruitful talks.
NK is reported to have been building two underground launching sites aimed at deploying an intermediate-range ballistic missile with a target distance of up to 4,000 kilometers following successful development last year. The missile is capable of reaching US military bases in Guam or possibly Hawaii.

Cries to reconsider sending additional troops to Iraq are growing louder, fueled by a worsening security situation in Iraq and the scandals over US abuse of prisoners in the country. Government reaffirmed its plans to send additional troops to a Kurd-controlled northern Iraqi city, however the dispatch date will not be decided until late July at the earliest, as the discords with local Iraqi authorities over technicalities in the mission are delaying the dispatch.

Under its Global Defense Posture Review, USA decided to withdraw some 3,600 soldiers out of US forces in Korea to redeploy them to Iraq this summer. Government is trying to assure the public that the nation's war deterrence will not be undermined despite the relocation of some 3,600 US soldiers, as the majority of citizens have raised security concerns about the gap.
SKorea and USA are set to officially begin the negotiations during June 7-8 on the resizing of US Forces in Korea. USA proposed to pull out some 12,000 soldiers from Korea, nearly a third of the total 37,000 military personnel. Many experts interpreted the move as part of America's plans to permanently reduce its military presence on the peninsula.

ECONOMY AND POLICY

Korea's disappointing 3.1% growth in 2003, sparked worries that the nation might be sliding into a slower era. Backing the pessimism, corporate capital spending shrank by 1.5%, a reversal from a 7.5% rise in 2002. BOK forecasts 5.5% economic growth this year.
Concerns are rising that the Korean economy is trapped in a cycle of so-called economic growth without employment.　The index stood at minus 0.05 in 2003, meaning that total employment fell 0.05% for every 1% increase in real GDP.

The export in April the highest monthly record at $21.7 bil, posting trade surplus of $2.9 bil, highest in 64 months.
Thanks to higher semiconductor prices, exports of information technology products reached $5.88 bil in April, a 42.3% increase on year.
Korea's business confidence in May rose to 96 from 90 in April, the highest level since the final quarter of 2002, with manufacturers expecting overseas sales to remain strong and internal demand to firm up.
Korea's consumer confidence in April rebounded to 99.9, a 19-month high from 94.4 in March, suggesting spending may pick up in the coming months.

Citing heated competition with China and Japan, the Korean government plans to provide helping funds of KW 133 bil this year, an 18% increase over 2003, to domestic parts and equipment manufacturers in seven core industries, including machinery, transportation, electronics, textiles and chemicals.
China exports kimchi to Korea, reaching 14,757 metric tons in the first quarter this year, a 174% increase on year.
Korean oil refineries saw their exports to China soar 20.8% during the first quarter of this year on year to 17.73 mil barrels with the revenue of $531.69 mil, up 16.2% from $457.67 mil a year earlier.

Government announced a set of measures aimed at promoting the creation of private equity funds. The move is designed to channel more money into stock investment, corporate restructuring and social overhead capital spending.

Overdue payments at Korean credit-card companies fell to 12.2% in March from 15.0% in February, as card companies wrote off bad loans to customers. The total amount of overdue credit-card bills fell KW 2 tril from February to KW 5.9 tril. Nonperforming loans at 19 Korean domestic banks increased sharply to KW21.27 tril during the first 3 months of this year, up 14.4% from KW18.6 tril at the end 2003, as some lenders merged with their troubled credit-card subsidiaries.
The number of Korean credit delinquents is nearing 4 million, or more than 8% of the population. Korean household debt rose KW 1.9 tril during April to KW 260 tril after rising KW 2.9 tril in March.

The Korean dependency on imported oil reached 97% with no way to establish own energy strategy. Korea spurred by rising international crude oil prices, Korea's average import price surged to $32.15 per barrel in March, the highest in 41 months, compared with last year's $28.74. Authority predicted that Korea's GDP will be shrunken by 3.67% when Dubai crude price goes beyond $35 per barrel.
Oil prices struck a new high on 24th with WTI at $41.85 a barrel, the highest price since the New York Mercantile Exchange launched the crude contract in 1983, responding the fear of a sabotage attack at oil fields following the killing of Westerners working for an oil contractor in Saudi Arabia, as well as the concern on US fuel inventories already running low. Dubai crude broke $36 barrier on 18th, the highest in 14 years.

Woori Financial Group, Korea's third-largest banking group, reported net loss for the first quarter at KW150 bil, third consecutive quarterly loss, due to a massive ongoing clean-up of problem on credit card assets.
Woori Finance Holdings and Taiwan's Yuanta Core Pacific Securities were picked to be exclusive bidders for LG Investment & Securities, Korea's No. 2 brokerage.
Korea Exchange Bank, owned by Lone Star Funds, posted net income of KW89.8 bil in the first quarter as it earned more commission from foreign currency exchange, increased lending and provisions for bad loans.

CHAEBOL

Tensions are escalating as the Fair Trade Commission pushes ahead its reform policy against family-controlled chaebols, reaffirming its commitment to force changes on the business giants. The FTC's now-expired right to investigate conglomerates' bank accounts has been extended for another three years. It requested large business groups to disclose details on the activities of their restructuring offices to the public in order to enhance corporate transparency.

DaimlerChrysler has decided to sell its $940 mil stake in Hyundai Motor (HMC), equivalent to 10.44% of HMC's capitalization, marking another pull back after its withdrawal from Japanese car market. HMC officially announced that its 4 years strategic alliance with DC has been over and its plan to jointly develop commercial car plant has been scrapped.
Kia Motors is to invest $645 mil with its Chinese partners to build a second plant in China to boost production in the world's fastest growing auto market.
GM Daewoo broke ground on a new plant that will produce diesel engines for passenger cars and new utility vehicles. The KW242 bil facility will be completed in April 2005 and start production in March 2006.

Samsung Electronics scheduled to supply 1.1 mil set-top boxes worth $130 mil to US-based DirecTV Group in the second half of this year and expects to extend the agreement to more than 2.7 mil units by 2005. Samsung Group has been favored as the most respected global conglomerate in China.
LG Group set up a KW30 tril investment plan in electronics R&D, expanding its research workforce to more than double to 30,000 employees by 2010.
Doosan Heavy Ind & Construction won a $370 mil desalination plant project in Kuwait, overcoming legal challenges from domestic rival HHI.
Korea's information technology (IT) competitiveness has been ranked first among the 30 member states of OECD. Korea's competitiveness in the IT sector was calculated at 2.43, almost three times higher than the OECD's average of 0.82.
A Citigroup's private equity unit decided to buy Hynix Semiconductor's nonmemory chip business for KW954 bil.
Creditors of Hanbo Steel selected the consortium of INI Steel and Hyundai Hysco as a preferred bidder, when they allegedly offered KW700-800 bil, which doubles the amount AK Capital proposed last year. Main contract is to be concluded by beginning of Aug. If the consortium wins the project, it would break 30 years monopoly of POSCO in the hot rolled steel market, establishing real competing system in the industry.

MONETARY AND ECONOMIC INDICES

Korean stock market has been on the roller caster all through the month after the record high oil prices, China's economic slow down and the indication of rise in interest rate in USA. The KOSPI started month at 862, plummeted to 790, continued to decline to 728, the lowest level in over 7 months amid a panic with the foreigners' sell-off streak, then rebounded to 816 to end the month at 800.

The exchange rate of KWon has been also fluctuated following foreigners' movement in stock market. It began the month at 1173 against US Dollar, strengthened to 1166, weakened to 1188 after foreigners' selling the stocks, then kept strengthed to close the month at 1160. Korea's foreign exchange reserves edged up to $166.54 bil at the end of May from $163.64 bil at the end of April, due to the capital gains on Korea's foreign currency assets.

BOK decided to keep its interest rate 3.75% unchanged, saying there is no need for an increase until the domestic spending revives. Korea's consumer prices in April ended 4 months of gains with the price index at 3.2% on year, as food prices fell. Korean producer prices in May had their biggest gain in 5 years to 5.5% on year from 4.4% in March as increases in the costs of oil and other commodities prompted manufacturers to charge more for chemicals and other industrial goods. The yield on 3 years corporate bonds has kept sliding from 5.21% to 4.90% through the month. Korea's seasonally adjusted jobless rate was unchanged in April at 3.4%.

SHIPBUILDING AND SHIPPING

Korean shipbuilding industry overwhelmed Japanese in the first-quarter in newbuilding orders it received. Koreans' aggregated orders totaled 5.6 mil CGT, 3.29 times of Japan's 1.7 CGT, while EU had 2.3 mil and China received 1.0 mil CGT, out of world total order of 10.9 mil CGT.
Following Chinese government's declaration to slowdown the economy, steel scrap price continued to fall from $350 per ton to $260-270 level, even though there seems no fundamental solution for shortage of steel material in China.

HHI revealed its first quarter performance with the sale of KW2.16 tril, up KW200 bil, net profit KW20.2, a 75% drop on year. HHI plans to expand its annual production capacity of LNG carriers from current 6 to 9 units, aiming Qatar II project. It has even further expansion plan to 12 units using Samho yard, in case it secures ample order from Qatar.
HHI received order from HMM for 3 x 6800 TEU and Dynacom 1 x 149K LNG. Samho agreed with Liquimar to build 1 x 168K tanker.
HMD's profit surged almost 7 fold in the first quarter to KW24.6 bil from KW 3.6 bil a year earlier. HMD secured order from Tsakos Group for 2 x 37K PC and CP Offen 2+2 x 2800 TEU container.

DSME announced ambitious plan to establish global shipbuilding network by 2015, constructing shipyards in Mid East, Caspian Sea, Africa and China under joint ventures, and expanding Daewoo Mangalia yard as a European sub headquarter. It targets overall sales at KW20 tril and operating profit KW3 tril, on the annual average growth of 14.5%. DSME got the orders from Bergesen for 3+1 x 149.6K LNG, Knutsen OAS 1 x LNG and World Wide Shipping 1 x 300K VLCC.
SHI announced its performance in first quarter with sale of KW1.53 tril and net profit KW42 bil, 25.7% down on year. SHI secured orders from Chevron Texaco for 2 x 115K tanker, NYK 2 x 149.6K LNG, BG Group 4 x 145K LNG and Premuda 2 x 113K tanker.

STX received orders from Klaus E Oldendorff with 2 x 3500 TEU containers and Hansa Treuhand 2 x 3500 TEU for its Chinhae yard, and Clipper Group Management 4+4 x 16K chemical carriers for Busan yard. STX decided to buy 700,000 own shares from the market in coming 3 months to stabilize the price. STX recorded in first quarter the sale of KW178.6 bil, KW15.1 bil up, with net profit KW34.2 bil, 7 fold up on year.
ShinA had an order from Novoship for 2 x 40K chem PC.

Korea Line recorded the best performance in its history, with operational profit of KW60.6 bil, 5 folds on year, on the sale of KW261.9 bil, 130% up on year. Korea Line has taken every measure to protect itself from the possible hostile M&A by Golar LNG who has increased its stake upto 21% by purchase 0.54% on May 20th and 0.94% on 28th. Korea Line's friendly stake grew to 33.48% in May from 31.68%. Major distribution of shares are Chairman Lee's league 33.48, Golar 21, Fidelity Funds 5.67 and Fearnley fonds 5.49%. After expansion of stake in the company, Golar proposed a joint participation in future KOGAS tender to Korea Line who was reported to flatly refused, as it has no way to find a good will in Golar's approach. Korea Line's share has been soared on the news of hostile M&A attempt.

HMM achieved record success in its first quarter performance with net profit of KW102.3 bil from the loss at the same period of last year, on the sale of KW1.2 tril, 38% up on year. At the back of its remarkable performance in first quarter, HMM has established an aggressive medium and long term plan to expand the fleet by placing orders for 3 x 6800 TEU and 2 smaller feeder container vessels NB, and purchasing 2 x 300K second hand VLCC, investing total KW443 bil.

The creditors of Pan Ocean started the progress to sell the company who graduated from court receivership in May 2002, with schedule to select the preferred bidder by the end Aug. HeungA Shipping placed an order with Japanese Sasaki yard for 2 x 1.2K chemical carriers on 2005 delivery.